Suggestions to help Minnesota’s small business owners and potential small business owners.

By Mel Aanerud, Former Assistant District Director of the United States Small Business Administration

Clarity of numbers

The country needs successful small businesses to create the jobs that our economy needs to prosper. Small businesses do account for more than 55% of all jobs, over 70% of all new jobs and over 70% of all the innovation.

The average business in the United States only makes between 1% and 2% profit on sales.  Of course, those statistics come from the IRS, and there is some attempt on the part of business to pay as little taxes as possible. Most are very legitimate, but even if we account for both the legitimate and illegitimate things done to reduce the small business tax load; it does not increase that percentage much.

People who are responsible to help small businesses, lenders, lawyers, accountants and even small business counselors, know that most small businesses fail.  I have seen University level text books that report 90% failure rates. The Wall Street Journal reported a Dunn and Bradstreet study said that 55% of all businesses fail within two years and 90% fail within ten years. The problem is that if you work that out arithmetically one in every sixteen men, women and children in the county would have to start a business each year.  That is not happening.

Dunn and Bradstreet actually said that many businesses “went out of business” each year which is not the same thing as failing.  They counted businesses that as part of their plan was designed to grow and then sell out to a larger firm.  They counted sole proprietorships that were sold, because under the law one business ended and another began. That sale may actually be to your own children. Most of these are not failures, but may indeed be the very definition of success.

Bankers learned in school however that 90% of new small businesses fail within ten years. Their jobs may depend on making loans, but they will get into trouble if they make too many that fail. When the small business owner asks for a loan, that banker has to decide if you are the one in ten that is going to make it, before they will make a positive recommendation.

The situation very simply is that the county depends upon small business to produce most of the nation’s jobs, but the world wants small businesses to do that with little return and because they know most small businesses are going to fail, everyone is going to provide that small business with minimal assistance.

How does a small business person get around this adversity? They must plan well, be positive, understand their product or service, their customers, their competitors and the economic situation they find themselves in and than positively show others that they really are an entrepreneur.

If a person decides they may not be ready: They must get advice, take classes, be willing to share their ideas fully, be flexible in their planning.  If the idea is a good one, people will not beat a path to their door, they have to go out and prove it to others.

Originally Published April 2009